Why Should CFOs Care About Legacy System Modernization?

CFOs are facing increased pressures with shifting priorities and inflationary worries. Application modernization can be a solution to deliver long-term savings.

With current volatile inflationary conditions, finance leaders are facing increasing pressure to find avenues to optimize in adverse conditions. These conditions have driven up costs, forcing finance teams to shift from a growth strategy to a ROI focus to maximize profitability. Legacy system modernization, while typically thought of as a challenging and expensive process, can actually deliver long-term cost savings that help drive the business forward for years to come. These efforts can generate the kinds of returns that finance professionals are thinking about, particularly if executed in a phased manner. Examples of the results of these efforts include advanced analytic tools that identify business areas of optimization, the ability to leverage AI models to increase employee productivity, and the reduction of business risk and cost related to legacy systems.

Improve decision-making through precise analytic insights

CFOs and their teams forecast and manage an organization’s finances in order to make decisions about the future. A robust analytics toolset is crucial to identify various opportunities within a company. Legacy systems become an issue here because they can be hard to integrate with vendor or client systems. The data provided by these systems augments an organization’s own data to gain deeper insights. For example, Citi has been working on creating a more efficient manner of storing and managing their data in order to create a centralized data hub. A core priority for them is to have both internal and external decisions driven by data. While they have kept most of their data on premises, they do use the cloud for their analytics software, which allows them to leverage data provided by third parties such as Experian and TransUnion.

Use systems that leverage AI to improve productivity

Finance teams across organizations are investing in AI to improve their customer experience and reduce their operational costs. In fact, according to a survey conducted by Gartner in 2022, 92% of CFOs planned to increase their investment in IT, with AI, digitization and data analysis holding the top three spots for technologies that CFOs say will make the biggest impact in the next three years. For example, JP Morgan has recently pursued a patent for an AI chatbot in an effort to develop a product that can bring financial advice to investors and become more responsive to potential inquiries. The company has also recently released a new, in-house NLP product called COiN which serves to analyze and extract information from financial documents like contracts. A core advantage of AI models that support products like these is their ability to automate repetitive tasks and handle large amounts of data, allowing employees to focus on higher-level decisions and work. Legacy systems weren’t built for the kinds of AI technologies used today, indicating that organizations will have to transition to modern systems in order to leverage these techniques.

Reduce costs and avoid blind spots to optimize the business’ future

CFOs not only set the budgets for hiring across an organization, but they also manage IT teams in some organizations as IT teams are in charge of creating business efficiencies. As this workforce continues to evolve, CFOs will need to take the differences in skill sets and desires of the newer talent into consideration in order to recruit them. The new generation of IT personnel are not familiar with legacy languages and technologies and they prefer to focus on developing their skills in modern languages and techniques. Moreover, the IT talent that is well-versed in these older technologies is quickly leaving the workforce, resulting in a labor shortage that drives up the cost of maintaining these systems. Many of these systems also don’t have current documentation, so as these workers leave, the knowledge of these systems leaves with them. One example of this can be seen at UC Riverside. When the CIO of the university decided to migrate the finance department’s business management activity platform from their old in-house UC system to Oracle Fusion Cloud Financials, he discovered that they had 90 separate applications that supported the university’s finance organization, all built in older languages (Grails and PL/SQL). These languages are not commonly known to the majority of the current workforce. As a result, not only was it hard to find support but even if support was found, it would often take six months to get them up to speed.

Running systems “blind” or “partially blind” leaves an organization vulnerable to system failures or security breaches amongst other consequences. The repercussions can include lost revenue, loss of reputation, and potentially even regulatory fines. A prime example of the severity of these costs is the estimated $1 billion that Southwest Airlines will have to bear for the disruption in their legacy point-to-point system. CFOs must take into account the price to be paid for not modernizing their legacy systems when performing a cost-benefit analysis and determining which initiatives to prioritize in order to reap legacy modernization benefits.

Plan for the future now

Overall, CFOs have multiple incentives to develop or integrate new technologies due to the combination of current market pressures, the advent of AI, and the urgency around meeting the needs of a changing workforce. To take advantage of these cost savings and opportunities, organizations will need to modernize their legacy systems. By recognizing and committing to the legacy system modernization effort, financial teams and their respective organizations will be well positioned to compete in the future.?

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